Banks not helping

The Forum of Private Business (FPB) is warning that inaccurate property valuations are preventing many smaller firms from accessing affordable bank lending.

The Forum of Private Business (FPB) is warning that inaccurate property valuations are preventing many smaller firms from accessing affordable bank lending.

It argues that banks are often undervaluing properties when considering them as security for business loans. This means that many small businesses are either forced to struggle with unfairly high interest rates on credit, or are denied loans altogether.

Research carried out by the Forum in July discovered that smaller businesses can expect to pay more than double the interest rate on unsecured loans than on lending guaranteed by assets, while members of the FPB's Economy Watch panel faced interest rates of 11.8% on unsecured borrowing, compared with 4.5% for secured lending.

Of those business owners providing security, 74% secured the loan against either a commercial or residential property, highlighting the importance of fair and accurate valuations.

"One of the root causes of the crisis of lending on commercial property is the lack of transparency in the UK's commercial property market," stated Andrew Bacon, of business property specialist, Leaseholders United, the Forum's advisor on property issues. "This has left many valuers with inadequate market data that, given economic conditions, will make them more pessimistic resulting in lower valuations on commercial properties. This means many banks will subsequently have a limited appetite and ability to lend to businesses."